House and Senate Democratic leaders — who control both chambers — unveiled similar proposals Monday within their supplemental 2023-2025 budgets, which must be reconciled within two and a half weeks.
In the Senate, Ways & Means Committee Chairwoman Sen. June Robinson, D-Everett, and Sen. Joe Nguyen, D-White Center, said details will have to be hashed out on the sizes of the individual rebates and the income eligibility thresholds. Robinson speculated the rebates would likely be distributed to families in the fall. The Senate version sends out the entire rebate in the fall. The House version splits the rebate between the fall and February.
Hovering over the proposed utility rebate is a public referendum — propelled by concerns about gas prices — to vote on repealing the cap-and-invest program in the November election. But the connection between the state’s new carbon pricing system and Washington’s gas prices is not a straight line.
Last December, Gov. Jay Inslee requested the Legislature to set up a rebate program for lower- and middle-income people to counteract the higher-than-expected gasoline prices resulting from the new program. Inslee’s December request called for a one-time $200 credit on the utility bills of roughly 750,000 low- and moderate-income households. Rep. April Connors, R-Kennewick, introduced a bill similar to Inslee’s request, but it never received a committee hearing.
So Inslee and Democratic leaders are trying to counter the increased costs at the pumps with these utility-bill breaks, arguing that the same people are hardest hit by higher gas prices.
Gas prices and cap-and-invest
Passed in 2021, Washington’s cap-and-invest program went into effect on Jan. 1, 2023. Under this program, oil companies and other carbon polluters bid on state allowances on how much carbon pollution they can emit.
Inslee and Democratic legislative leaders have been taking political flak for the state’s high gasoline prices, due in part to oil companies passing their carbon auction costs on to consumers at the pump. Gas prices in the three West Coast states — Washington, Oregon and California — usually are among the highest in the nation for economic and geographic reasons unrelated to the cap-and-invest program. Earlier this year, Nguyen said Washington’s gas prices have been consistently among the top five in the nation since the 1970s.
Last summer, for the first time, Washington posted the nation’s highest average gasoline price — $4.89 per gallon of regular compared to a national average of $3.54 per gallon, according to AAA. Six months after cap-and-invest went into effect, Washington’s average gas price was $1.35 above the national average.
However, in June 2022, six months before the cap-and-invest program went into effect, Washington’s average gas price, $5.55 per gallon, was its highest ever (though not the highest in the nation), according to AAA. It topped the national average of $4.85 per gallon by 70 cents.
Today, Washington’s average price for regular is $3.91 per gallon, compared to the national average of $3.27 — a 64-cent difference, lower than the 70-cent difference posted prior to the cap-and-invest program taking effect. Washington now has the nation’s fourth-highest average gas prices, behind Hawaii, California and Nevada.
The bottom line is that the cap-and-invest program is just one factor among many that increase and shrink Washington gasoline prices.
Rebate politics and the election
At a Tuesday media availability, GOP leaders criticized the timing of the proposed utility rebate, characterizing it as a November election ploy by the Democrats. Republicans say Democrats plan to combat the ballot measure to repeal the Climate Commitment Act, which includes the cap-and-invest system, by warning that there’s no guarantee that future rebates will occur if voters choose to dump the new program.
“Let’s be candid on how much $200 will help. ... It’s not much. ... It’s a little like electioneering,” said Senate Minority Leader John Braun, R-Centralia. House Minority Leader Drew Stokesbary, R-Auburn, called the fall timing of the rebate “really suspicious.”
House Majority Leader Joe Fitzgibbon, D-West Seattle, responded to that criticism: “I wonder how Rep. Stokesbary will pay for [the rebates] if we revoke the Climate Commitment Act.” The proposed rebates would come out of cap-and-invest revenue.
Democratic leaders also replied to a Republican criticism of Senate Transportation Chairman Marko Liias, D-Edmonds, who has said repealing the cap-and-invest program will hurt the state’s transportation budget. GOP leaders maintain the transportation budget is independent of the cap-and-invest program, although members of both parties have recommended spending some Climate Commitment Act revenue on transportation projects.
Senate Majority Leader Andy Billig, D-Spokane, said the cap-and-invest program pays for some transportation expenses — for example, free transit for people under 18. The money for these projects would have to come from another source, Billig said.
Liias agreed that Climate Commitment Act money is paying for a major portion of the supplemental transportation budget that the Legislature is currently working on. In another example, cap-and-invest revenue would make up any potential shortfalls to pay for converting up to three existing diesel ferries into more efficient hybrid diesel/electric vessels. The state has the funds to convert two, but without cap-and-invest money it might struggle to convert a third, Liias said.
Other changes to the Climate Commitment Act
The state government raised roughly $1.8 billion during the first year of carbon auctions in 2023, and the Inslee administration is forecasting the program will raise another $941 million in the first half of 2024. For the “invest” part of the new program, the Legislature is allocating those dollars toward clean-energy development and programs that mitigate the impact of climate change, particularly on disadvantaged communities. This session the Legislature took two approaches to shrink auction prices, which would theoretically result in lower gas prices.
Senate Bill 6052 would have created a new Washington agency to watchdog the state’s oil industry. That proposal died in the Senate Ways & Means Committee in early February because of the estimated $30 million expense of setting up the cybersecurity that would be required to collect data. Since this is not a budget session, lawmakers only tweak the 2023-2025 budget, and that $30 million is considered more than a tweak. Nguyen said he expects the money will be available in the 2025 budget session, and the bill is expected to be revived next year.
This watchdog agency has been a major plank in Gov. Jay Inslee’s push to fight climate change. Inslee and Democratic leaders are concerned that the oil industry is taking advantage of the news around the year-old cap-and-invest program to unnecessarily increase gas prices.
“We knew a proposal like this would be a heavy lift for a short session, especially with the expense of setting up new state infrastructure for this,” said Inslee spokesman Mike Faulk in an email. He adds, however, that even though gas prices have dropped to almost their lowest in two years, consumers will continue to experience dramatic price swings. “As we make the transition to clean fuels, transparency into oil pricing will only become more important for protecting consumers,” Faulk said.
Jessica Spiegel, vice president for the northwest region of the Western States Petroleum Association, which represents four of Washington’s five oil refineries, notes in an email: “Until the close of this session, no proposal is truly dead. However, there are legitimate concerns about the structure, scope and costs of the new state agency SB 6052 would have created. Once we move beyond this issue, the focus can be on the important work of reforming Washington’s cap-and-trade program.”
Modeled after a new California office, the proposed agency would collect a massive amount of financial and industrial data from various branches of Washington’s oil industry, including its five refineries and a complex supply chain.
The proposed agency would have subpoena power, and would confidentially refer suspected violations of state law to the Washington Attorney General’s Office. It would report its observations and conclusions to the governor’s office, other state agencies and the Legislature.
Meanwhile, the Senate passed Senate Bill 6058 on Feb. 12 on a vote of 29 to 20 along party lines, which would link Washington’s cap-and-invest system with California’s and Quebec’s in an attempt to lower share prices and potentially shrink Washington gas prices. The proposal drew no opposition, but collected several requests for technical tweaks.
Washington’s quarterly settlement prices in 2023 — $48.50 to $63.03 per allowance, which represents one metric ton of emissions — were much higher than the state had predicted in 2021. By comparison, California’s settlement auction prices began in 2012 at $10 per allowance, reaching slightly above $36 in 2023.
Nguyen, the bill’s sponsor, said joining the larger California-Quebec market would shrink and stabilize auction prices in Washington, although the earliest this collaboration could happen is 2025. He hoped this larger market would be a model that encourages other states to get involved in similar programs. So far, California and Washington have the nation’s only full-fledged cap-and-trade carbon emissions programs, though New England has a limited program for some utilities. New York is considering joining the group.
The biggest potential change related to connecting Washington’s program to California’s and Quebec’s is that it would allow a single bidder in a quarterly auction to obtain up to 25 percent of the allowances for sale. Currently, the limit for any bidder in a quarterly auction is 10 percent. However, the allowance limit for any single corporation in a calendar year would still be 10 percent of the total allowances offered.
